New to Real Estate · Portland, OR · Member since 2020 · 35 posts · 5 votes
My girlfriend and I are looking to purchase our first house in the next six months. I want to purchase a duplex and rent out the other unit, or a large single-family home and rent out rooms/basement (1st option preferred). We are saving towards a 3.5% down payment (roughly $10,000 for the market and homes I am looking at), considering we get an FHA loan. However, I want to keep expanding my portfolio and eventually purchase a separate rental investment property in the area, so that I can also manage it. I do not want to wait until we have saved up a 20% down payment (about $60,000) for a conventional loan, so I am wondering if anyone has advice on how to get that 20% DP covered with other funds besides our own. I am aware that hard money could be an option, but with the shorter terms on those types of loans, I don't feel confident that I could pay that back in time (on top of the mortgage) with the only source of income from that property being the monthly cash flow. Is this idea possible without BRRRRing the property? (So far I have not been able to find great deals worth BRRRRing in the area).
Rental Property Investor · Springfield, MO · Member since 2019 · 462 posts · 365 votes
6y
BRRRR... that is the best strategy of getting into a property without having to pay 20% down. If you don't want to go that route then start looking for cheaper properties to purchase (and if you say that isn't possible in your area then start looking in different areas, cities, or states).
@Dillon Francis Have you considered trying to save up to 5% and getting a conventional loan on a multi family that already has a lease in place. I'm not a lender and your area may be different than here but as long as one of the leases is up so you can move into the property and the other is signed for a year you may be able to use that to balance the debt to income ratio on something a little more expensive. You'd have to wait 2 years to refinance and get more money out of it to keep investing but could be an option.
New to Real Estate · Portland, OR · Member since 2020 · 35 posts · 5 votes
6y
@Jon Reed I hear you man, just doing some creative brainstorming and hearing people's opinions and expertise. I appreciate your feedback! Great suggestion as well. I have been starting to look around other markets out of curiosity and seeing if that type of investing works for me.
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
6y
Buy a fixer and flip or BRRRR it. Or find properties with seller financing. Or raise capital. Investing in real estate without capital requires a lot of work.
New to Real Estate · Portland, OR · Member since 2020 · 35 posts · 5 votes
6y
@Mike Dymski I appreciate the suggestions! I eventually want to start using the BRRRR method, but I know that typically involves a smaller chunk of capital to begin with. I do like the idea of seller financing and will keep an eye out for those deals!
Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes
6y
As others have said moving into the new property can work to get more favorable financing and BRR can work as well as long as everything goes right. Keep in mind not everything will go right and make sure to have reserves in place. I own 3 properties one one I had to pay 3400 to have a water line replaced and on another this year I was out 2600 on a new ac and that is with a family discount, luckily no vacancy. Expanding is the goal but in the words of Big Pun, mo money mo problems. Don't expand too fast without the cash to cover what you have or you are setting yourself up for disaster, maybe not now but eventually.
Rental Property Investor · Minneapolis, MN · Member since 2020 · 540 posts · 285 votes
6y
@Dillon Francis
First would be Seller Financing, and maybe they’d take 5% down.
Next if you can find a Rent to Own (always a seller finance) and confirm with the current owner that you could sublease it, then you put 3.5% down to the owner and have a monthly payment which you would need to get more than to cover PITI,capex,mgmt.
Finding a small portfolio lender / credit union who would maybe let you refinance your current lease and combine into one larger loan using your own home as collateral. Or get a HELOC if you have equity in your home but then to pay that back in exchange you don't have much cash flow until the HELOC is over.
I do agree with Eric James that you do want some capital reserves for an emergency repair.
My girlfriend and I are looking to purchase our first house in the next six months. I want to purchase a duplex and rent out the other unit, or a large single-family home and rent out rooms/basement (1st option preferred). We are saving towards a 3.5% down payment (roughly $10,000 for the market and homes I am looking at), considering we get an FHA loan. However, I want to keep expanding my portfolio and eventually purchase a separate rental investment property in the area, so that I can also manage it. I do not want to wait until we have saved up a 20% down payment (about $60,000) for a conventional loan, so I am wondering if anyone has advice on how to get that 20% DP covered with other funds besides our own. I am aware that hard money could be an option, but with the shorter terms on those types of loans, I don't feel confident that I could pay that back in time (on top of the mortgage) with the only source of income from that property being the monthly cash flow. Is this idea possible without BRRRRing the property? (So far I have not been able to find great deals worth BRRRRing in the area).
You mention hard money. You said you knew it was an option. Actually this is not an option whereas and hard money lender would insist on being in first position.
New to Real Estate · Portland, OR · Member since 2020 · 35 posts · 5 votes
6y
@Mike Dymski I appreciate the suggestions! I eventually want to start using the BRRRR method, but I know that typically involves a smaller chunk of capital to begin with. I do like the idea of seller financing and will keep an eye out for those deals!
New to Real Estate · Portland, OR · Member since 2020 · 35 posts · 5 votes
6y
@Adam Martin thank you for sharing part of your journey. I am beginning to realize that even I got seller financing or FHA loan, or just the most minimum downpayment possible, I am still going to need reserves for such instances that you mentioned. I figure I will take the time needed to save up and not try to take any shortcuts that could hurt me in the long run.
New to Real Estate · Portland, OR · Member since 2020 · 35 posts · 5 votes
6y
@Derrick Dill I didnt even think about that as an option. There are a few things I am wondering about though. First, I'm guessing there is a certain amount of time that you must wait before being able to refinance, do you know how long that is in this instance? And second, since you would be switching to a conventional mortgage in that instance, would you have to put more money down to make up the difference from a 3.5% DP to a 20% DP?
Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
6y
^How soon you can refinance will vary lender-to-lender, but about 6 months. You can switch to a 5% down conventional loan, free up your FHA. Ideally, make renovations to your property, boosting up your appraisal price, giving you more equity and more "down" on your property.
In those 6 months, add a bedroom, rent it out. Or refinance into a renovation loan and add a bedroom that includes the new appraised value of the property (homestyle, homeready).
I've done 401k loans to help finance my properties, but everyone has different comfort levels.
New to Real Estate · Portland, OR · Member since 2020 · 35 posts · 5 votes
6y
@Frank Hinck that is all great advice. I really am learning so many new things from you and my other fellow BP members. I see now that there are workarounds to not having a lot of cash to start with, but they seem to be a bit complicated and risky. I will look more into those strategies you mentioned to at the very least educate myself on them. I also agree with you and Eric as well, that it is wise to have some money put away for reserves. Thanks again for the advice Frank!
New to Real Estate · Portland, OR · Member since 2020 · 35 posts · 5 votes
6y
@Derrick Dill Okay so it sounds like you are saying that I could make up the additional downpayment in equity, if I am able to add value to my home in those six months.
Great idea regarding the bedroom addition, and renting it out would be a bonus! I have heard of renovation loans but have not looked too much into them yet. Are you saying that is another option instead of switching to a conventional mortgage, or can you stack the two?
Funny that you mention the 401k loan, because a coworker of mine just told me about that strategy today. I will also look more into that. In doing so, would you recommend talking to a lender about that first or my 401k holder?
Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
6y
The best way to lower your monthly payment will be to have 20% in equity in your home (=20% down). If not, you can refinance out of your FHA 3.5% and get a conventional 5% down loan (still PMI [private mortgage insurance]). You can refinance out of your FHA loan into a conventional renovation loan. Do some research on your renovation loan options: FHA 203k, Homestyle, Homeready, and see what fits best for you.
Your 401k holder will be the one to take care of your 401k loan and you can usually decide on terms. I like it because you're paying yourself interest, but keep in mind you're missing out on stock market gains.
Here are the general considerations regarding 401k loans.
401k Participant Loans
If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k. The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.
Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).
Please keep in mind the multiple loan rules:
Under those rules, the sum of the balances of a participant's outstanding 401k loans under a single 401k plan (using the highest outstanding balance of each loan over the last 12 months) can't exceed 50% or $50,000 whichever is less. Thus, if you took a $50,000 loan and paid it back within 6 months, you would need to wait another 6 months before you could take another $50,000 loan.
Real Estate Broker · Omaha, NE · Member since 2020 · 329 posts · 203 votes
6y
@Dillon Francis if you find a private investor and get a loan for the down payment- give them all the cash flow the property produces until they get their money back, or partner with someone and do a similar strategy. If you come in with 10k and they put in 50k- allow them to collect until your equity is equal and then split 50/50. There are tons of ways but that’s the fun part of the creativity